Discount to face value

118 Pages·2016·2.04 MB·English

by  Phillterr V. Saligumba

SL AGRITECH CORPORATION

Php 1,000,000,000
Short Term Commercial Paper Issue
Issue Price: Discount to face value

SL Agritech Corporation (the “Company” or the “Issuer”) is authorized by the Securities and
Exchange Commission to issue up to Php1,000,000,000 worth of short-term commercial papers
(the “STCPs”). The Initial Tranche will carry a Discount Rate of 4.50%, 4.75%, and 5.25% for
Series A, B, and C, respectively, calculated on a true-discount basis. (See “Terms and
Description of the STCPs – Discount Rate”). The Initial Tranche will have the following tenors:
90 days, 180 days, and 360 days for Series A, B, and C, respectively.

The STCPs shall be offered to the public (the “Offer”) at discount to face value and in one lump
sum or in tranches through the Underwriter and the Selling Agents named below subject to
certain conditions in the Issue Management and Underwriting Agreement executed between the
Issuer and the Issue Manager/Underwriter. The STCPs are intended to be listed at the Philippine
Dealing & Exchange Corp. (PDEx) for secondary trading of the STCPs and upon such listing,
all secondary trading may be coursed through eligible PDEx Trading Participants. The Issuer
has been assigned a credit rating of PRS Aa (Corp.) by the Philippine Ratings Services
Corporation (“PhilRatings”). A credit rating is not a recommendation to buy, sell, or hold the
securities and may be subject to revision, suspension, or withdrawal at any time by PhilRatings.

Sole Issue Manager, Lead Arranger and Underwriter

Multinational Investment Bancorporation

Selling Agents

AB Capital and Investment Corp. Philippine Commercial Capital, Inc.

January 5, 2015

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE AND SHOULD BE REPORTED IMMEDIATELY TO THE SECURITIES
AND EXCHANGE COMMISSION.
SL AGRITECH CORPORATION
STERLING PLACE 2302 PASONG TAMO EXTENSION
MAKATI CITY 1231, PHILIPPINES
[phone]

SL AGRITECH CORPORATION (the “Issuer” or the “Company) is offering Short Term Commercial
Papers (the “STCPs”) in the aggregate principal amount of P1,000,000,000.00 (the “Offer”). This is
the first issuance of STCPs by the Company. The STCPs, which may be issued in lump sum or in
tranches, shall have an interest rate fixed prior to issuance.

The STCPs will be unsecured obligations of the Company and will rank pari passu without any
preference amongst themselves and at least pari passu with other unsecured and unsubordinated
obligations of the Company, present and future, other than obligations preferred by law. The STCPs
will be effectively subordinated in right of payment to all secured debt of the Company to the extent
of the value of the assets securing such debt and all debt that is evidenced by a public instrument
under Article 2244(14) of the Civil Code of the Philippines.

The Company expects the Net Offer proceeds to amount to approximately Php990,388,375.00.
Such proceeds will be used by the Company for general working capital requirements to finance
inventory acquisition and refinance existing obligations. See “Use of Proceeds” on page 27. The
Underwriter will receive 0.50% on the aggregate value of the STCPs issued. Such amount shall be
inclusive of the underwriting and selling agency fees and shall be deductible from the net proceeds
of the Offering.

The Company was registered with the SEC on September 11, 2000 with an authorized capital stock
of Php100,000,000.00 divided into 1,000,000 common shares with a par value of Php100.00. In
September 28, 2010, the SEC approved the increase in the Company’s authorized capital stock to
Php1,000,000,000.00 divided into 1,000,000,000 common shares with a par value of Php1.00 per
share. In July 9, 2012, the SEC approved the increase in the Company’s authorized capital stock to
Php2,000,000,000.00 divided into 2,000,000,000 common shares with a par value of Php1.00 per
share.

The Company is the only Philippine producer of hybrid rice seeds with fully integrated operations.
The Company operates two business segments: the production of hybrid rice seeds and premium
rice. The majority of the Company’s business is currently derived from hybrid rice seeds, after its
first product, SL-8H, was successfully developed and distributed. Another objective of the Company
is to develop premium rice from its hybrid rice seed products. The Company currently conducts
research and propagates proprietary hybrid rice seed varieties, and distributes premium rice
products under the brand names “Doña Maria”, “Cherry Blossom” and “Willy Farms.”

The Company was granted by the BOI non-pioneer status for its hybrid rice production in Nueva
Ecija in March 2015 and pioneer status for its seeds production in Lupon, Davao Oriental in February
2009. The Company’s main activities are covered under the Investment Priority Plan of the Board of
Investments and thereby granted BOI incentives. The hybrid seed production in Lupon, Davao
Oriental is registered as a pioneer producer of hybrid rice seed with an annual capacity of 3.2 million
tons, while the rice processing plant in Talavera, Nueva Ecija is registered as a new producer of
hybrid rice with an annual capacity of 29,225 metric tons. As a registered company, it is entitled to
certain benefits including Income Tax Holiday for a period of five (5) years from the date of
registration with an extension of two (2) years. The Company further avails of BOI benefits under
the law as a result of the additions to and expansion of its production facilities.

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The Company’s Board of Directors (the “Board”) is authorized to declare cash or stock dividends or
a combination thereof. A cash dividend declaration requires the approval of the Board and no
shareholder approval is necessary. A stock dividend declaration requires the approval of the Board
and shareholders representing at least two-thirds of the Company’s outstanding capital stock.
Holders of outstanding shares on a dividend record date for such shares will be entitled to the full
dividend declared without regard to any subsequent transfer of shares. The Company, intends to
declare as a policy at least 5% of its prior year’s net income as dividends whether in stock or in cash,
subject to statutory limitations. See “Dividend Policy” on page 72.

Unless otherwise stated, all information contained in this Prospectus has been supplied by the
Company. The Company, through its Board, having made all reasonable inquiries, accepts full
responsibility for the information contained in this Prospectus and confirms that this Prospectus
contains all material information with regard to the Company, its business and operations and the
STCPs, which as of the date of this Prospectus is material in the context of the Offer; that, to the
best of its knowledge and belief as of the date hereof, the information contained in this Prospectus
are true and correct and is not misleading in any material respect; that the opinions and intentions
expressed herein are honestly held; and, that there are no other facts, the omission of which makes
this Prospectus, as a whole or in part, misleading in any material respect. The delivery of this
Prospectus shall not, under any circumstances, create any implication that the information contained
herein is correct as of any time subsequent to the date hereof.

Multinational Investment Bancorporation, the Sole Issue Manager, Arranger and Underwriter,
warrants that it has, to the best of its ability, exercised the level of due diligence required under
existing regulations in ascertaining that all material information contained in this Prospectus are true
and correct, and that to the best of its knowledge no material information was omitted, which was
necessary in order to make the statements contained in this Prospectus not misleading. Except for
its failure to exercise the required due diligence, the sole Issue Manager, Lead Arranger and
Underwriter assumes no responsibility for any breach of the representations of the Company.

Market data and certain industry information used throughout this Prospectus were obtained from
internal surveys, market research, publicly available information and industry publications. Industry
publications generally state that the information contained therein has been obtained from sources
believed to be reliable, but that the accuracy and completeness of such information is not
guaranteed. Similarly, internal surveys, industry forecasts and market research, while believed to be
reliable, have not been independently verified and neither the Company nor the Sole Issue Manager,
Arranger and Underwriter makes any representation as to the accuracy and completeness of such
information.

In making an investment decision, applicants are advised to carefully consider all the information
contained in this Prospectus, including the following key points characterizing potential risks in an
investment in the STCPs:

Risks relating to the Company and its business

 Dependency on programs developed or supported by the Department of Agriculture of the
Philippines;
 Risk of non-acceptance of the Company’s hybrid rice seed products;
 Risk of being affected by changes in the preferences or purchasing power of consumers;
 Risks of the Company not executing its sales strategy efficiently;
 Dependence on its proprietary rights on hybrid seeds and rice;
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 The Company’s business is affected by seasonality;
 Revocation of BOI Registration;
 Dependence on key personnel, the loss of which could adversely affect its business and
growth;
 Dependence on certain key managers of Sterling Paper Enterprise, Inc.;
 Reliance on third parties;
 Risk of products not meeting customer’s requirements;
 Increased amount of debt.

General Risks

 Political or social instability
 Slowdown in the Philippine economy
 Natural catastrophe and calamity

Risks Relating to the Short Term Commercial Papers

 Liquidity Risk – the Philippine securities markets are substantially smaller, less liquid and
more concentrated than major securities markets
 Price Risk – the STCPs market value moves (either up or down) depending on the change
in interest rates
 Retention of Ratings Risk – there is no assurance that the rating of the STCPs will be
retained throughout the life of the STCPs

For a more detailed discussion on the risks in investing, see section on “Risk Factors” beginning on
page 19 of this Prospectus, which, while not intended to be an exhaustive enumeration of all risks,
must be considered in connection with a purchase of the STCPs.

This Prospectus includes forward-looking statements. The Company has based these forward-
looking statements largely on its current expectation and projections about future events and
financial trends affecting its business and operations. Words including, but not limited to “believe”,
“may”, “will”, “estimates”, “continues”, “anticipates”, “intends”, “expects” and similar words are
intended to identify forward-looking statements. In light of the risks and uncertainties associated
with forward-looking statements, investors should be aware that the forward-looking events and
circumstances in this Prospectus may or may not occur. The Company’s actual results could differ
significantly from those anticipated in the Company’s forward-looking statements.

The contents of this Prospectus are not to be considered as legal, business or tax advice. Each
prospective purchaser of the STCPs receiving a copy of this Prospectus acknowledges that he has
not relied on the Sole Issue Manager, Arranger and Underwriter or Selling Agents in his investigation
of the accuracy of such information or his investment decision. Prospective purchasers should
consult their own counsel, accountants or other advisors as to legal, tax, business, financial and
related aspects of a purchase of the STCPs.

The STCPs are offered solely on the basis of the information contained and the representations
made in this Prospectus. No dealer, salesman or other person has been authorized by the
Company or by the Sole Issue Manager, Arranger and Underwriter to issue any advertisement or
to give any information or make any representation in connection with the Offer other than those
contained in this Prospectus and, if issued, given or made, such advertisement information or
representation must not be relied upon as having been authorized by the Company or by the Sole
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Issue Manager, Arranger and Underwriter.

The laws of certain jurisdictions may restrict the distribution of this Prospectus and the offer and sale
of the STCPs. Persons into whose possession this Prospectus or any of the STCPs come must
inform themselves about, and observe any such restrictions. Neither the Company, the Issue
Manager/Underwriter and the Selling Agents, nor any of its or their respective representatives are
making any representation to any prospective purchaser of the STCPs of the legality of any
investment in the STCPs by such prospective purchaser under applicable legal investment or similar
laws or regulations.

ALL REGISTRATION REQUIREMENTS HAVE BEEN MET AND ALL INFORMATION
CONTAINED HEREIN IS TRUE AND CURRENT.

The Company is organized under the laws of the Republic of the Philippines. Its principal office is
located at Sterling Place 2302 Pasong Tamo Extension Makati City 1231, Philippines with telephone
number [phone]. Any inquiry regarding this Prospectus should be forwarded to the Company,
or to Multinational Investment Bancorporation.

SL AGRITECH CORPORATION

By:

HENRY LIM BON LIONG
Chairman

SUBSCRIBED AND SWORN to before me this ____th day of ___________ 2015 in
__________, Philippines, affiant exhibiting to me his ____________________________________
issued on _____________ in ____________

Doc. No ________;
Page No________;
Book No ________;
Series of 2015.

Page 5
TABLE OF CONTENTS

DEFINITION OF TERMS ............................................................................................................ 7
EXECUTIVE SUMMARY ............................................................................................................ 9
SUMMARY FINANCIAL INFORMATION ................................................................................. 12
THE OFFER ............................................................................................................................. 14
RISK FACTORS ....................................................................................................................... 20
USE OF PROCEEDS ................................................................................................................ 28
DETERMINATION OF THE OFFER PRICE ............................................................................. 30
PLAN OF DISTRIBUTION ........................................................................................................ 31
DESCRIPTION OF THE SECURITIES TO BE REGISTERED .................................................. 33
INTEREST OF NAMED EXPERTS AND COUNSEL ................................................................ 36
INDUSTRY OVERVIEW AND COMPETITIVE OVERVIEW ...................................................... 37
THE COMPANY ....................................................................................................................... 48
COMPANY OVERVIEW ........................................................................................................48
HISTORY ..............................................................................................................................48
PRODUCTS ..........................................................................................................................50
RESEARCH AND DEVELOPMENT ......................................................................................52
PRODUCTION PROCESS ....................................................................................................55
MARKETING, SALES AND DISTRIBUTION .........................................................................58
COMPETITION .....................................................................................................................60
COMPETITIVE STRENGTHS ...............................................................................................60
BUSINESS STRATEGY ........................................................................................................61
NON-DEPENDENCE ON A SINGLE CUSTOMER ...............................................................62
TRANSACTIONS WITH OR DEPENDENCE ON RELATED PARTIES .................................63
INTELLECTUAL PROPERTIES ............................................................................................63
GOVERNMENT APPROVALS AND PERMITS .....................................................................71
EFFECT OF EXISTING OR PROBABLE GOVERNMENT REGULATIONS ON THE
COMPANY’S BUSINESS ......................................................................................................72
EMPLOYEES ........................................................................................................................72
PLANS AND PROGRAMS ....................................................................................................72
PROPERTIES .......................................................................................................................73
INSURANCE .........................................................................................................................73
LEGAL PROCEEDINGS .......................................................................................................74
MARKET INFORMATION .....................................................................................................74
DIVIDEND POLICY ...............................................................................................................74
RECENT ISSUANCE OF EXEMPT OR UNREGISTERED SECURITIES .............................75
DIRECTORS AND SENIOR MANAGEMENT ........................................................................75
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS ........................................................79
SECURITY OWNERSHIP OF CERTAIN RECORD AND BENEFICIAL OWNERS ................82
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION .................................................................................................................. 86
MATERIAL CONTRACTS & AGREEMENTS ......................................................................... 111
REGULATORY & ENVIRONMENTAL MATTERS ................................................................. 113
GENERAL CORPORATE INFORMATION ............................................................................. 114
PHILIPPINE TAXATION ......................................................................................................... 115

Page 6
DEFINITION OF TERMS

Banking Day……………….. A day (except Saturdays, Sundays and holidays) on which banks
in the Philippines are open for business

BIR………………..………… Bureau of Internal Revenue

BOI………………..………… Board of Investments

BPI………………..………… Bureau of Plant and Industry

BSP………………..………... Bangko Sentral ng Pilipinas, the central bank of the Philippines

Company………………..….. SL Agritech Corporation

Corporation Code…………. Batas Pambansa Blg. 68, otherwise known as “The Corporation
Code of the Philippines”

DA………………..…………. Department of Agriculture

DENR………………..……… Philippine Department of Environment and Natural Resources

Directors……………………. The members of the Board of Directors of the Company

Government………………... The Government of the Republic of the Philippines

GRT…………………………. Gross receipts tax

Issue Date………………….. A date at which the STCPs or a portion thereof shall be issued by
the Issuer, which date shall be set by the Issuer in consultation with
the Sole Issue Manager, Arranger and Underwriter. For the
avoidance of doubt, an Issue Date shall at any time be a date which
is within the validity of the SEC Permit to Sell.
Listing Date………………… The date at which the STCP shall be listed with PDEx

Lim Family………………….. Mr. Henry Lim Bon Liong, Mr. Joseph Lim Bon Huan, Mr. Gerry Lim
Bon Hiong, and Mr. Ruben Lim Bon Siong.

MAO………………………… Municipal Agricultural Officers

NFA…………………………. National Food Authority

Offer………………………… Up to Php1,000,000,000 Short- ‐Term Commercial Papers

Offer Price………………….. Discount to face value

P or Php or P………………. Philippine Pesos, the lawful currency of the Republic of the
Philippines
Page 7
PDEx……………………...... Philippine Dealing & Exchange Corp.

PDST……………………….. Philippine Dealing System Treasury

PDTC……………………...... The Philippine Depository and Trust Corporation

PFRS……………………….. Philippine Financial Reporting Standards

Philratings………………….. Philippine Ratings Services Corporation

Prospectus…………………. This Prospectus together with all its annexes, appendices and
amendments, if any

SEC…………………………. The Philippine Securities and Exchange Commission

SLAC or SL Agritech……… SL Agritech Corporation

STCP………………………... The short term commercial papers, an evidence of indebtedness
of any person with maturity of three hundred and sixty five (365)
days or less

STCP Holder………………. A purchaser of the STCPs

Sole Issue Manager and
Arranger……………………. Multinational Investment Bancorporation

SRC…………………………. Republic Act No. 8799, otherwise known as “The Securities
Regulation Code”

Underwriter………………… Multinational Investment Bancorporation

Underwriting Agreement….. The agreement entered into by and between the Company and the
Underwriter, indicating the terms and conditions of the Offer and
providing that the Offer shall be fully underwritten by the
Underwriter

USD…………………………. U.S. Dollars, the lawful currency of the United States of America

VAT…………………………. Value Added Tax

Page 8
EXECUTIVE SUMMARY

The following summary does not purport to be complete and is taken from and qualified in its entirety
by the more detailed information including the Company’s financial statements and notes relating
thereto, appearing elsewhere in this Prospectus. For a discussion of certain matters that should be
considered in evaluating any investment in the STCPs, see the section entitled “Risk Factors”
beginning on page 19 of this Prospectus.

OVERVIEW OF THE COMPANY

SL Agritech Corporation, incorporated in 2000, is the only Philippine producer of hybrid rice seeds
with fully integrated operations. The Company operates two business segments: the production of
hybrid rice seeds and premium rice. The majority of the Company’s business is currently derived
from the hybrid rice seeds business, after its first product, SL-8H, was successfully developed and
distributed. Another objective of the Company is to develop premium rice from its hybrid rice seed
products. The Company currently conducts research and propagates proprietary hybrid rice seed
varieties, and distributes premium rice products under the brand names “Doña Maria”, “Cherry
Blossom” and “Willy Farms.”

The Company’s fully integrated operations, which begins with hybrid rice seed research and ends
with the sale of premium rice products, provides an advantage over traditional rice producers. This
structure enables the Company to develop its proprietary hybrid rice seed varieties to either sell to
local and international markets or to mass produce as premium rice. Having a fully integrated
operations allows the Company to utilize its technology while simultaneously maximizing volume
production with consistent quality.

The Doña Maria brand of rice is positioned as premium quality rice targeting the High and Middle
income consumers. The Company’s second brand, Cherry Blossom, aims to attract the lower middle
income consumers. All of the Company’s rice products also originate from its proprietary hybrid rice
seeds. The premium rice business currently has five (5) Doña Maria variants, one (1) Cherry
Blossom variant and three (3) Willy Farms variants. The Doña Maria products currently compete in
the market against the Thai Jasmine rice varieties, while Cherry Blossom aims to compete against
the local varieties. The Company recently launched a third brand, Willy Farms, targeting the middle
income pricing range.

The Company was founded by the Lim Family and is affiliated with Sterling Paper Enterprise which
is simultaneously headed by Mr. Henry Lim Bon Liong, as Chairman. The Company is positioning
itself to be the Philippines’ leading proponent of hybrid rice farming technology and industry model
for sound farm management practices. Its objectives are to help the country to achieve rice self-
sufficiency and improve the livelihood of local farmers.

COMPETITIVE STRENGTHS

The Company believes that its strengths lie in the following:

 Innovation of high yielding rice technology
 Superior and consistent product quality
 Fully integrated operations
 Attractive growth prospects
 Strong market position
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Additional information on the Company’s Competitive Strengths may be found in the “The Company”
beginning page 46.

BUSINESS STRATEGY

The Company plans to further strengthen its position as the only local producer of high-yielding
hybrid rice seeds and increase its market share of its premium rice products. The Company intends
to achieve this by pursuing the following strategies:

 Increase brand awareness
 Improve operational efficiency
 Maintain product leadership
 Improve customer and market knowledge
 Develop new products
 Expand market share

RISKS OF INVESTING

Before making an investment decision, investors should carefully consider the risks associated with
an investment in the STCPs. These risks include:

Risks relating to the Company and its business

 Dependency on programs developed or supported by the Department of Agriculture of the
Philippines;
 Risk of non-acceptance of the Company’s hybrid rice seed products;
 Risk of being affected by changes in the preferences or purchasing power of consumers;
 Risks of the Company not executing its sales strategy efficiently;
 Dependence on its proprietary rights on hybrid seeds and rice;
 The Company’s business is affected by seasonality;
 Revocation of BOI Registration;
 Dependence on key personnel, the loss of which could adversely affect its business and
growth;
 Dependence on certain key managers of Sterling Paper Enterprise, Inc.;
 Reliance on third parties;
 Risk of products not meeting customer’s requirements;
 Increased amount of debt.

Risks relating to the Short Term Commercial Papers

 Liquidity Risk
 Price Risk
 Retention of Ratings Risk

General Risks

 Political or social instability
 Slowdown in the Philippine economy
Page 10